High Court Of Gauhati
Williamson Financial Services Ltd. vs. CIT & ANR.
Section 32AB, 80HHC
Asst. Year 1990-91
P.G. Agarwal & Smt. A. Hazarika, JJ.
IT Appeal No. 9 of 2003
27th November, 2006
Counsel Appeared :
Dr. A.K. Saraf, for the Assessee : U. Bhuyan, for the Revenue
JUDGMENT
P.G. Agarwal, J. :
Heard Dr. A.K. Saraf, learned counsel for the petitioner, and Mr. U. Bhuyan, learned counsel for the respondent IT Department.
The appellant, Williamson Financial Services Ltd., is a company incorporated under the provisions of the Companies Act, 1956, and engaged in the business of manufacture and sale of tea. The appellant company filed its return of income for the asst. yr. 1990-91 claiming the deduction under s. 80HHC and also under s. 32AB of the IT Act. The assessment was completed vide order dt. 18th March, 1993, whereby the AO disallowed the claim of the appellant under s. 80HHC on the interpretation of r. 8(1). The full deduction under s. 32AB was also disallowed. Feeling aggrieved, the appellant company approached the CIT(A) by preferring an appeal and the appellate authority granted both the reliefs to the appellant, whereupon the Revenue approached the Tribunal, Guwahati Bench, in ITA No. 22/Gau/1996. The learned Tribunal allowed the appeal of the IT Department and remitted back the same to the AO with the direction to decide the issue afresh and hence, the present appeal. The following substantial questions of law were framed by this Court :
“1. Whether, on the facts and in the circumstances of the case, deduction under s. 80HHC is not to be allowed from the composite income of the assessee before application of r. 8(1) of the IT Rules, 1962 ?
2. Whether the dividend, interest and other income earned by the appellant company can be included in computing the profits of the eligible business under s. 32AB of the IT Act ?”
4. So far as the first question of law is concerned, Dr. Saraf has submitted that the above question has been answered by this Court in the case of Bazaloni Group Ltd. vs. CIT (2005) 193 CTR (Gau) 709 : (2005) 272 ITR 11 (Gau), wherein it was held that the special deduction is required to be computed before apportionment of income as agricultural and non-agricultural income, under s. 80HHC r/w r. 8 of the IT Rules. Mr. Bhuyan has submitted that in view of the above decision of this Court, the matter stands settled. Now coming to the second question, the appellant claimed deduction of Rs. 52,59,000 under s. 32AB. The AO, however, held that while computing the income, deduction of an amount of Rs. 79,93,253 which was shown as interest income, has also been included by the auditors towards the business income. The AO therefore, held that the interest income is not a “business receipt” and cannot form a part of the profits in the business and accordingly, the interest income was excluded from the gross receipt. The appellate authority did not agree with the assessing authority as regards the application of s. 32AB and held that all the incomes of the appellant company arose in the normal course of carrying on the business of the said company and therefore form a part of the appellant’s business income. Although they have been shown and classified under different heads of income, they continue to be income arising out of the business of the company and accordingly, directed the assessing authority to include the interest income, dividend income and other income in the profits of the eligible business income while computing the deduction available to the appellant under s. 32AB.
The learned Tribunal, however, held that interest income and dividend income did not come from the profits on account of business and profession, such interest and dividend cannot be included in the income for the purpose of deduction under s. 32AB.
The question in the present case is whether the income from interest and dividend falls under the definition of “eligible business or profession” under s. 32AB of the IT Act. The word “eligible” is deleted from the Act in the year 1991, but so far as the present case is concerned, it is covered by the earlier provision. The word “eligible” has been defined by the apex Court in the case of Apollo Tyres Ltd. vs. CIT (2002) 174 CTR (SC) 521 : (2002) 255 ITR 273 (SC).The appellant company has filed a copy of the memorandum and articles of association of Namdang Tea Co. Ltd., the original company, which has since merged with the appellant company. The objects of the company include the following : “(a) To lend and advance money, either with or without security and give credit to such persons (including Government) and upon such terms and conditions as the company may think fit. (b) To undertake financial and commercial obligations, transactions and operations of all kinds. (c) To invest any moneys of the company in such investments (other than shares or stock in the company) as may be thought proper and to hold, sell or otherwise deal with such investments.A submission is made on behalf of the respondents that in the present case, there is nothing to show that the business of investment in shares, lending money for interest and manufacture and sale of the tea business are not common in nature and both the businesses are not intertwined and interlaced as was the case in Apollo Tyres (supra). The matter was examined by the appellate authority and the following observations are pertinent : “The income from interest is part and parcel of our tea business. The fact that the company’s activities gave rise to interest and sundry receipts does not detract from the facts that the company’s business remains what it is and has always been i.e., growing, manufacturing and sale of tea. The said activities did not constitute a separate business distinct from the tea business. The test to be applied for determining whether the business is the same or whether there is interconnection, an interlacing, an interdependence between and a unity embracing the business activities. In the case of the appellant the test is fully satisfied, inter alia, for the reason, the central and management finance, books of account, staff, premises are the same. Courts have held that where the test is satisfied the chargeability of the incoming receipt under a different head of income is not of any consequence.The latter part of the above observations was not accepted by the Tribunal and accordingly, the full deduction was disallowed. The question was considered by the apex Court in Apollo Tyres (supra), where the Court held :
“The facts that it is shown under a different head of income would not deprive the company of its benefit under s. 32AB so long as it is held that the investment in the units of the UTI by the assessee company is in the course of its ‘eligible business’. Therefore, in our opinion, the dividend income earned by the assessee company from its investment in the UTI should be included in computing the profits of eligible business under s. 32AB of the Act.”
In Apollo Tyres (supra), the company was engaged in the business of manufacture and sale of tyres but at the same time, the company was dealing with sale and purchase of UTI units which was provided for in their memorandum and articles of association. The facts of the present case are identical, and only because the income from the interest and dividend have been shown under different heads, the benefit under s. 32AB of the Act cannot be denied to the appellant company.
In the result, the appeal is allowed and the order of the Tribunal is set aside. Both the questions of law are answered in favour of the appellant and against the Revenue.
[Citation : 290 ITR 385]
